Supermarkets Dominate

Supermarket old photoIn the middle of the century, supermarkets began to dominate the task of supplying food to the nation’s consumers and that affected farmers and consumers in both good and bad ways.

Supermarkets had actually begun in the 1930s but the Depression and World War II had slowed their growth somewhat. By the 50s, all of the elements to produce dominance came together –

  • Supermarkets needed to be large stores often located on the outskirts of cities where land was cheap.
  • They were surrounded by vast parking lots to cater to a new, mobile populace.
  • Operating costs were low. Customers picked out their own items from vast shelves; that was a departure from old groceries where staff people would box items to the customers request.
  • They carried up to 10,000 individual, nationally branded items and the customer could expect to find almost anything he or she would want from meat, dairy, produce, deli to household items.
  • Prices were kept very low. The supermarkets made their money on volume – small profits on each item multiplied by thousands of items.
  • Supermarket chains demanded and got the lowest possible prices from national suppliers. The days of locally grown produce were essentially over.

By 1950, supermarket chains brought in about 35 percent of the food-retailing dollar – and food retailing was the America’s largest business. By 1960, that market share jumped to 70 percent of the food retail business.

At around the same time, a company that started out manufacturing ice in the South was developing a new type of food store that would challenge supermarket chains for some of its market dominance. In the 1920s, one of the directors of the Southland Company, a small ice manufacturer, suggested to his partners that they begin selling chilled watermelons since they already had the ice. From there, it was a short leap in logic to begin selling other grocery items. By the 1930s, they started co-locating their stores with gas stations and emphasizing the convenience they offered – stop in, gas your new car and buy those impulse grocery items you need at the same time.

Consumer protestIn 1945, a few stores in Texas were given a new identity – “7-Eleven Stores” – and the chain began to expand. By 1960, they opened their 500th store. Between 1965 and 1969, 7-Eleven exploded from 1,519 stores in five states to 3,537 stores in 38 states, the District of Columbia and three Canadian provinces

Despite the rise of convenience stores, most consumers did the bulk of their food shopping at the supermarket. That’s why supermarkets were the targets of the wrath of housewives in the mid- to late-60s when food prices shot up. By December 1966, retail food prices were 5.4 percent higher than they had been in 1965. That increase was 1.1 percent higher than the increase in the general consumer price index (CPI) for the same time period.

The ensuing debate was remarkable. Almost everyone in the food supply chain – from farmer to marketer to processor to distributor to retailer with government thrown in – blamed everyone else for the increases. Subsequent studies suggested that better prices for farmers were responsible for slightly more than half the overall increase.

  • There had been a 25 percent increase in food bought for the military because of the Vietnam War.
  • Unseasonable weather in 1965 had cut production of fruits and vegetables and raised prices.
  • Low milk prices in the early 60s pushed dairy farmers to leave the business and that increased prices for those who remained and consumers.
  • The food surpluses of the early 60s were being sold from government storage bins because of rising consumer demands.

Farmers liked to point out that a loaf of bread that cost 37¢ at the supermarket had only 4.7¢ worth of wheat in it and 2.8¢ of other ingredients in it. But the farmers’ share of other food items was higher – ranging from 14 percent of canned tomatoes to 58 percent of choice beef.

Supermarkets came in for their own share of criticism, and they responded. The big chains argued that their profit margins were extremely low, only 1.3 percent of sales. They pointed out that wages costs had shot up by 22 percent and rents and services shot up by 54 percent between 1950 and 1965.

At the same time, however, supermarkets and processors were passing on to consumers not just the added cost of ingredients but an adjusted profit calculated on the basis of the total cost of the product – a practice the Federal Trade Commission called “pyramiding.”

Supermarkets were also spending huge sums on advertising. Between 1950 and 1964, advertising for food quadrupled, a much greater increase than any other industry. One advertising practice came in for particular criticism, contests and trading stamp programs. By the end of the decade, those programs were suspended at most chains.

Gradually the protests died down and the growth of supermarkets continued.

Don Freeman (left) says that the first supermarket in York, Nebraska, soon killed the little grocery stores around his neighborhoodsfilm_freeman_R. “I remember the first supermarket opened up in York,” he says, “it was going to be opened 24 hours a day. We said, ‘No way! That’s never going to work. I mean, it’ll close within two years. It’ll close.’ Well, that’s been 45 years ago.” Don says the big chains prefer to buy from large farm operations, squeezing the small farmers economically.

It was also during this time that both supermarkets and convenience story chains began to vertically integrate. For instance, 7-Eleven invested in its own dairy operation.

By the early 70s, Safeway had over 2,400 stores plus 16 bakeries, 16 ice cream plants, three coffee roasting plants, 3 sausage plants, 12 meat cutting and aging plants, four fruit and vegetable canneries, four frozen fruit and vegetable plants, three cheese plants, 2 cracker and cookie bakeries, four soft drink plants, two jam and jelly plants and one each of plants for margarine, shortening, cereal, candy, soap, gelatin dessert and edible oil.

What this explosion of national chains meant for the farmer is that, again, he or she was pushed to get bigger in order to sell commodities to the large supermarket chains themselves or to the national brand name suppliers who sold to them.

Written by Bill Ganzel, the Ganzel Group. First published in 2007. A partial bibliography of sources is here.

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